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Forecasting Korean Manufacturing Performance, the Second Half of 2020

Author Lee Sungkyung(이성경) Date 2020.10.30 Series
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With much of the world now being battered by second waves of the COVID-19 pandemic and with no safe and effective vaccine in hand, it is reasonable to expect the economic impact of COVID-19 will linger over the global economy for quite some time. South Korea, which as a small open economy is heavily dependent on export-led economic growth, witnessed its exports and production plummet in the second quarter of 2020. While supply chain disruption was the main concern during the initial phase of the pandemic, its effects have now spilled over to all industries and sectors of the global economy. Eventually, daily lives interrupted by COVID-19 will help shape the post-pandemic economic paradigms and global value chains (GVCs) will have undergone significant structural changes.
As central banks and research institutes have lowered earlier forecasts for the rest of 2020, it is of vital importance to study thoroughly how coronavirus-induced economic disruption affects major economic variables in the Korean manufacturing sector and quantify its impacts in a scientific way.
In much the same way, this study aims to analyze the correlations between major macroeconomic variables and design a compact forecasting model to compute short-term forecasts based on those relationships. Specifically, based on the dynamic mechanism between business cycles, real variables, and policy tools, I attempt to forecast export and production performance of Korean manufacturing industries for the second half of 2020.
The second chapter reviews economic indicators and forecasts recently published by major institutes and studies economic trends. The third chapter details the econometric model and data set and the last chapter describes several methodological shortcomings with suggestions for the future and wraps up the study.